Banks Give Landlords The Cold Shoulder On Service Charges

Article

29 August, 2012

The 2012 Olympics are already a fading memory, but this summer has seen another kind of hurdles being erected. Rather than the 110-metre long lines of barriers which international athletes have been leaping over to claim gold medals, banks are increasingly requiring landlords of leasehold properties to jump over additional obstacles to claim their prized service charges.

Long term leases of residential property usually include an obligation on the landlord to carry out repairs to the structure and exterior of the property, but the leaseholder must then pay a contribution towards the landlord's costs.

These works often cost thousands of pounds to each leaseholder, and may even exceed the amount paid to buy the flat. Even in cases of shared ownership leases, occupiers are increasingly struggling to meet just the regular monthly or annual charge due to under financial strains such as redundancy.

When these costs are unaffordable, it is standard practice for the landlord to ask the leaseholder's mortgage lender to pay off the arrears and add the debt to the leaseholder's mortgage account - as is usually permitted under the terms of the mortgage deed.

However, the ongoing economic crisis appears to be forcing lenders to take a view on how readily they pay out on these claims. We are increasingly finding that lenders are requiring landlords to serve a formal Pre-Forfeiture Notice under Section 146 of the Law of Property Act 1925.

A Section 146 Notice is a legal prerequisite before a landlord can seek forfeiture for breach of lease (other than rent arrears). Therefore, the lenders are increasingly calling the landlords' bluff and forcing them to take this extra step to prove they are serious about potentially forfeiting the lease for non-payment of charges.

Unfortunately this also raises further hurdles to clear in the case of residential property. The first is that the total rent and service charges owing must either exceed £350 or have been overdue for three years or more.

The second is that the landlord may not serve a Section 146 Notice for non-payment of service charges unless either (a) the leaseholder has admitted that the charges are payable, or (b) the service charges have been the subject of a determination by a Court or Tribunal. This creates the extra step of needing to seek either a County Court Judgment or a Leasehold Valuation Tribunal determination.

Ultimately, the additional costs incurred in seeking a CCJ or LVT decision will be added to the costs of preparing and serving the Section 146 Notice, which will in turn be added to the mortgage arrears balance. The banks simply delay the inevitable, the landlord still gets paid in full, but the ultimate loser is the leaseholder who has another chunk of equity taken away which could have been avoided.

Forbes Solicitors specialises in acting for social housing landlords in Shared Ownership and Right to Buy leasehold disputes, including non-payment of rent and service charges, statutory consultation procedures, repairing obligations and leaseholder rights disputes.

Contact our dedicated Housing Litigation Team on 01772 220022 for more information and advice.

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